Talking Freight

Freight Security Issues

.

Freight Security Issues

Operator:

Ladies and gentlemen. Thank you for standing by. Welcome to the Talking Freight seminar. During the presentation all participants will be in a listen only mode. Afterwards we will conduct question-and-answer session. At that time, if you have a question, press the one followed by the four. I would now like to turn the all over to moderator Jennifer Seplow. Please go ahead, ma'am.

Jennifer Seplow:

Good afternoon, or good morning to everybody, and welcome to the Talking Freight seminar series. My name is Jennifer Seplow and I will moderate today's seminar. Today's topic is "freight security issues" please be advised that today's seminar is being recorded. Today we'll have three speakers, Kimberly Nott of U.S. Customs and Border Protection, Chip White of the Georgia Institute of Technology and John Gerner of the Federal Highway Administration.

Kimberly Nott is the Chief of the Manifest & Conveyance Branch, Washington, DC. Headquarters office of the U.S. Customs & Border Protection. Ms. Nott is directly responsible for policy and oversight of national manifest issues concerning air, vessel, rail and truck for inbound conveyances. Ms. Nott was involved in the development and implementation of the "24-Hour Rule" in the vessel environment and the Trade Act of 2002 regulations.

Ms. Nott began her law enforcement career during her commitment to the U.S. Air Force where she gained her Bachelors Degree in Criminology from St. Leo University. Upon completing her commitment to the U.S. Air Force, Ms. Nott began her Customs career in 1992 at Miami, FL. While in Miami, Ms. Nott gained inspectional experience in both passenger and commercial operations while serving as a Customs Inspector and Supervisory Customs Inspector on the Contraband Enforcement Team. In May 1999, Ms. Nott transferred to headquarters in the Office of Field Operations, Trade Programs and worked as a Program Officer for vessel operations. In November 2000, Ms. Nott was appointed Chief of Manifest issues for Field Operations. Additionally, Ms. Nott has a Master's Degree in Public Administration from GeorgeMasonUniversity.

Chip White is the ISyE Chair of Transportation and Logistics at the Georgia Institute of Technology, where he is the Director of the Trucking Industry Program (TIP) and the Executive Director of The Logistics Institute (TLI). Professor White serves on the boards of directors for CNF, Inc. (a Fortune 500 company, traded on the NYSE), the ITS World Congress, ITS America, and The Logistics Institute - Asia Pacific. He is a former past President and member of the ITS Michigan Board of Directors and has served as a member of the advisory boards of Kinetic Computer Corporation, Billerica, MA, and of CenterComm Corporation, San Diego, CA. He is a member of the International Academic Advisory Committee of the Laboratory of Complex Systems and Intelligence Science of the Chinese Academy of Sciences.

Professor White's most recent research interests include analyzing the role of real-time information and enabling information technology for improved logistics and, more generally, supply chain productivity and security, with special focus on the U.S. trucking industry. His recent activities include presentations at the Council on Competitiveness and the Brookings Institution, both of which were concerned with the impact of information technology on international freight distribution, security, and productivity. He recently represented ITS America by providing testimony during a roundtable discussion entitled "Reauthorization of the Federal Surface Transportation Research Program", held by the U.S. Senate Committee on Environment and Public Works.

Professor White received his Ph.D. from the University of Michigan in 1974 in Computer, Information, and Control Engineering.

John Gerner is Program Manager for Transportation Security in the Office of the Administrator, Federal Highway Administration. He is also the Team Leader for FHWA's Security Products Team. In this position, he is responsible for coordinating agency activities in the areas of security research, infrastructure security needs assessments and countermeasures, operations preparedness, emergency response, and military deployment support. He serves as the primary point of contact on transportation security issues with other modal administrations within DOT, the Office of the Secretary, the Office of Maritime and Land Security within the Department of Homeland Security, the AASHTO, and other organizations.

Mr. Gerner has been with the Federal Highway Administration for 33 years. He has served as the project manager on the Woodrow Wilson Bridge Project, a Transportation Specialist in both the Office of Traffic Management and ITS Applications and Office of Policy, and the Area and District Engineer in the FHWA Pennsylvania Division Office. Mr. Gerner holds a BS in Civil Engineering from Valparaiso University.

I'd like to go over a few logistical details prior to starting the seminar. Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. The Operator will give you instructions on how to ask a question over the phone during the Q&A period. However, if during the presentations you think of a question, you can type it into the smaller text box underneath the chat area on the lower right side of your screen. Please make sure you are typing in the thin text box and not the large white area. Presenters will be unable to answer your questions during their presentations, but I will use some of the questions typed into the chat box to start off the question and answer session in the last half hour of the seminar. Those questions that are not answered will be posted to the Freight Planning LISTSERV. The LISTSERV is an email list and is a great forum for the distribution of information and a place where you can post questions to find out what other subscribers have learned in the area of Freight Planning. If you have not already joined the LISTSERV, the web address at which you can register is provided on the slide on your screen.

If at anytime you would like to zoom in on the slide that is showing on your screen, you can click on the zoom icon at the top of your screen. It looks like a magnifying glass with a plus sign in it.

Finally, I would like to remind you that this session is being recorded. A file containing the audio and the visual portion of this seminar will be posted to the Talking Freight Web site within the next week. To access the recorded seminar, please visit Talkingfreight.webex.com and click on the "recorded events" link on the left side of the page and then choose the session you'd like to view. Due to the size of the file, recorded files are available for viewing/listening purposes only and cannot be saved to your own computer. We encourage you to direct others in your office who may have not been able to attend this seminar to access the recorded seminar.

The PowerPoint presentations used during the seminar will also be available within the next week. I will notify all attendees of the availability of the PowerPoints, the recording, and a transcript of this seminar.

We will hang on just a few minutes until 11:00 and at 1:00 we'll start with Kim Nott. In the meantime we'll place you back in hold and at 1:00 we'll start up with the presentation. Welcome everybody to the Talking Freight seminar on freight security issues. It is now about 1:00. And I see that many have joined us so I think we'll begin. Our first presentation of the day will be that of Kimberly Nott of U.S. Customs and Border Protection and she will be speaking about the Trade Act and the various components for those of us who just joined us, we will be doing question and be answers at the end of all three presentations. If you do have a question, type it into the chat area and we'll get to that during the question and answer period. Kim, I will turn it over to you in just a second. Okay, Kim you may begin when you are ready.

Kim Nott:

Okay, thank you. Good afternoon, everyone. This is a presentation on the Trade Act of 2002, and as you can tell, we are now in 2004, so it has taken a while to get there, but it was a very massive transportation - or legislative act that we did. To start out with, to give you some idea of what actually occurred, the trade promotion act as you might hear it called or TPA, or the Trade Act. We here at the customs call it the Trade Act. It was signed into law on august 6th of 2002. On November 25th, of 2002 that was later amended by the section 101 of the maritime security act and it eliminated some of the vessel information. What the Trade Act had us do that by October 1st of 2003, CBP was to promulgate regulation. That gave us a little over a year to do regulation change. What actually it provided for is CBP the authority to require electronic transmission from cargo to and from the United States, prior to the arrival or departure of the cargo. It was for - to ensure cargo safety and security, and the secretary which in this case would be DHS secretary, department of homeland security to be reasonably necessary. So we couldn't go out and just get everything we really wanted. It had to be linked to cargo safety and security. The purpose of it was to provide for more homeland security. We needed - CBP needed more data timely and accurately and in advance. Once the cargo is here, it's a little too late to worry that it shouldn't be here. It also allowed us an opportunity to link all of that this into the targeting systems so we can have better and more accurate information. And this is for all modes of transportation. So it's all - it's truck, rail, vessel, air, inbound and outbound. So it's a very large statutory authority there. The purpose, we were supposed to build on existing systems. They wanted this information sooner, rather than later they didn't want us to come up and create a new computer system. They wanted to use what we had, which would minimize costs both to CBP and the trait. It also allowed for quicker implementation so we didn't have to wait a year or two or three for a new system to be built. And due to it being electronic, we could increase compliance. It would require more increase in compliance, because computers only accept certain things. The rule we did incorporate it ordered us to meet with the trade, various members of the trade and to incorporate their comments. Many of their comments were, in fact, incorporated into the final rule. The time line of the actual regulations that we published from the Trade Act, we did our notice of proposal making on July 23rd of 2003. It had a 0-day comment period which closed on august 22nd. We received 128 comments. We then had to do what we call an economic analysis which is the cost involved to the trade to implement the regulation. That was very detailed. We had never really done one, so we did hire a company to help us out with that. And the final regulations were approved by department of homeland security and the office of management budget. We also were required to submit a report to congress 15 days before final rule in which case if congress did not agree with our plan, they could have stopped it. So we did comply with that requirement, and as you can tell, on December 5th of 200, we did publish our final rule, and I have listed the Federal Register notice there of how to find it later on in the program, I will actually show you how to get to that on a web site for future use. The time frames that we came up with, for inbound cargo, and just so you know, I do work for inbound cargo only. So I can't touch a whole lot on the outbound and I'm not the right person to talk to if you have outbound questions. So it's just on inbound. We have truck, which is an - we have several ways that you can submit your information electronically and these are all interim procedures until our new computer system is up and running. So you have via the automated broker interface, or if you have a free and secure trade, which we call FST. if you have the auto broker interface, the requirement is CBP must receive it 30 minutes prior to arrival of the truck at the border. If it is a non-FST truck, then we must receive it one hour prior to arrival. And we can receive that via the ABI, the automated broker interface, through brass, we also have the inbond systems in place, which are CAFES, customs automated forms entry system and the QPWP which is part of the automated broker interface. For rail, we - for rail, vessel and air we already had automated in place, since we required the use of those and our automated manifest. For rail we must receive it two hours prior to arrival at the border. Vessel 24 hours before loading the vessel in the foreign port and air is four hours prior to arrival for distances further away and then for those locations that are from NAFTA countries, which will be Mexico, Canada, and some of the Caribbean, central America, north of the equator, those time frames are at departure. For outbound the time frames are - they will be using their automated export system. Which is EES, the time frame per truck is one hour prior to arrival at the border, rail is two hours prior to arrival at the border and vessel 24 hours prior to departing from each U.S. port of load and air is two hours prior to the scheduled departure. And those time frames are not in effect yet. The implementation time line that we have worked on is vessel to comply before March 4th of 2004, and this would mainly - was mainly due because we had already implemented what we called the 24-hour rule. So the part of the Trade Act pretty much just incorporated the 24-hour rule, added some new things but the bottom line is it required everything to be electronic. We completed that. So vessels are automated and submitting their information as we speak. Rail we had three phases of rail to roll out to the various ports. With he had July 12th, august 110th and September 9th and as you can tell, we just completed that. Irrelevant, we have three phases on air. We sort of broke it up, based on country. And so we have kind of east coast, central and west coast. So east coast began on august 13th, central U.S. will begin on august 13th - or October 13th, and the west coast will be December 13. So we're coming up on our second implementation date for air. Truck was just published. Our Federal Register notice was just published for the implementation date, and we have three phases for that. The first phase will begin for ports on November 15th. Excuse me. The second implementation will be December 15, and the third will be January 14 of 2005. And outbound, as I said, the dates will be announced in a Federal Register notice and that's in cooperation with census bureau, who is rewriting their regulations and it's going to be included in that. So when that comes out, it will be a notice of proposal we're making for comments. So you will definitely want to keep an eye on that, if that's of interest to you. What we did for enforcement guidelines for vessel was as I said, the time frame for compliance was March 4th. The Trade Act was very similar to the 24-hour rule, with the fact that we did require the information electronically. We included two new data elements, which were the date and the time of sailing and that was so we could verify they submitted their information 24 hours prior to loading. It set up time frames for bulk and approved bulk vessels. The rule is generated for container vessels only. So we did not want to hold bulk and break bulk vessels to that standard. We have identified time frames and the approved paperwork the company had to submit their information to CBP and basically it would be routine shipments to the same shipper co-signee that we would agree that they did not need to meet the it mandate of the 24-hour rule f. You are not an approved break bulk carrier or company, you must shit your information 24 hours prior to loading. And then as of right now and - you must submit your information 24 hours prior to loading. And then as of right now, if you don't submit it 24 hours in advance, it will be denied. We'll do our targeting to make sure that there's nothing suspect on that vessel and then you will be told that you cannot unload your cargo in the U.S. so you will have to go back out. For the enforcement guidelines that we did for rail, we put a memo out to our field offices on July 27th. And what we were looking for - and the only thing we were looking for - is these items identified in the bullet for the first 30 days from July 27th, the information had to be electronic it had to be two hours prior to arrival. The reason we kind of held this a little tiger was that pretty much most of the rail carriers were automated. There were only a few - it was mostly CBP ports that were not automated or only had one crossing. So we wanted to give more training. We've done. That two hours prior to arrival or we would hold the train and then we would issue letters, informed compliance letters for egregious violations for timeliness, missing or invalid shipper information, missing or invalid cosignee information, conveyance number. Those were the only items we were focusing on in the initial 30 days for rail crossing. We kept cargo moving. We didn't stop anything at the border, per se, unless they failed to transmit to us. And I believe in that first 30 days we only had one rail carrier that did not comply. So that was very good. Beginning on day 31 the failure to submit information will result in the train being held and penalties being issued and these will be the same for each - they were the same for each rollout of the different phases for those different months. So that was how we're doing the rail. For air regulations, they are a little more difficult, so I put a few more things in here, just to make it a little more clear. The time frames for reporting, as I said, there are two time frames. One is nearby from foreign areas, again North America, Mexico, Central America, South America, which is north of the equator so literally I believe it's Ecuador is split in two. So there's an airport on the south of the equator, and an airport north of the equator. The airport that's south of the equator is a four-hour time frame and airport north of the equator is time of departure. So we did kind of split that up and Bermuda. That information is received prior to wheels up or departure as we call t. The other is arrival from other foreign areas and that is we must receive the information four hours prior to arrive arrival. A lot of people misunderstand and think that's when they need to send it. No, that's with we need to receive t. And then we had some other issues concerning permits to receive or an inbound port. So I put in an example. A permit to proceed is where you land in one location but your cargo moves - or we approve your cargo to move to another location where you will file entry. For example, if the aircraft originated in Japan and had a fuel stop in anchorage and was final destination to JFK, we will require that information prior to arrival of the aircraft in anchorage. We do not want to allow cargo to move across country without knowing what it is and having targeted it prior. For an inbound, if cargo is loaded in London and going to Chicago for a stop and moved to Dallas on an in-bond we will require the information four hours prior to the arrival of the aircraft in Chicago. For the time lines for the air, we have the - we have distributed our enforcement procedures on July 14, and, again, the only thing we were enforcing was carriers would failed it automate. So for the first 30 days, that was our goal. We broke those 30 days up into weeks and first week we would do, hey, you need to be automated. The second week woe would let them know. We would be getting - they couldn't do anything, until we had already reviewed their manifest. The cargo had to be held on the plane until we got their manifest and viewed it and viewed that there was nothing of danger or suspect, or that we needed to examine. And then we would allow it to move. By the fourth week if they continued to have not automated, then we would not allow the cargo to be discharged in the U.S... So we would require them to submit their paper manifest, holding the cargo on the plane, we would review it, target it, do what we needed to do with it and then we could tell them that they could not unload the cargo. If they were going to another U.S. port that would be fine but they still could not unload the cargo. In the U.S. on day 31, which we're kind of behind the curve here and a little late on the enforcement procedures for phase two, but they are in our signature process, and I'm expecting them out, hopefully by the end of the week. And we will - all of this information is posted on our web site on the different - what's required during the different procedures and I will show you how to get there later. For truck, as I said, we just published a Federal Register notice on august 17th, and that's the identifier to find it on the Federal Register web site. With very three implementation phases the first one begins November 15th and that's for 40 ports. For December 15th23 ports and January 16 for 16 ports and we are working on the informed compliance guidelines right now. I can say that we are handing out - we're printing up notices so to speak to hand to the truckers coming across and that will start October 1st, and basically let the truck driver know it will have a little check box that the inspector will check, and say that you are in violation of this and by November 15, have you to come into compliance. So that way it lets the truck driver know that there are procedures in place. Here is our web site. This is - it's CBP.gov, customs and border protection. As you can tell, our web site is divided into three columns. The first one starts where commissioner highlights and then the center column that I circled and then the far right column, which is under the what's new section. What you would do is go here and cursor down under the center section where it says more features. You cursor down until it says Trade Act of 2002. Hyperlink on to that and it lists everything we have done on the Trade Act. It has frequently asked questions for all modes, air, rail, we're putting truck up, and vessel, and it has everything that we've done on it. So it should be very useful to anyone would needs more information on that. To get to the Federal Register, it's the NARA, which I believe is national archives and records administration, go to that, and then I have circled - it's hard to read on here, but it says Federal Register. Would you click on that and you can input the information, the Federal Register site. And basically it's the volume and the page number that's being identified. And so you can go to that. So to wrap up, in a summary, again there's our web site that we put everything on there. We're actually most - posting it there before we actually give information to the field and we have told our field offices that if it is under our web site under the Trade Act section, then it is policy until we have a chance to make proper documents for the feel. So that way we, as headquarters are issuing a single statement of how to process information. Again, they are the frequently asked questions can be completed and those are generated from our field and the trade who ask questions about specific information - issues. Again, utilize the proper points of contact. Again, I am inbound for information. If you are asking me about outbound, I will have to refer you to other people. And then you get stuck in the phone tag thing. So that's just frustrating so just be aware that that's what happens. So I am for inbound. And then I have reiterated the implementation guidelines vessel and rail are completed. So we are very excited that we have accomplished that and air is on its way. We're waiting on the October 13 deadline. And truck will start in November. And then we're still waiting on outbound to have their Federal Registers published. So it's been a very difficult process to get all of this in. It's huge. It's been a huge thing, but we're very happy that we're about halfway through, and we're waiting for January. So that will be the end of my presentation. Thank you.

J. Seplow:

Thank you, Kim. Again, I do want to remind everybody that if they do have questions, go ahead and type them into the chat area and we'll address those after all three presentations. We will now move on to Chip White. Who is going to speak about supply chain security and productivity. So Chip, let me give you the presenter role.

Chip White:

Okay, thank you, Jennifer. The topic here is really associated with security and productivity and supply chains, so one of the things that we're very interested in doing is trying to understand how the new U.S. security initiatives that Kimberly were talking about, improve U.S. homeland security . I think we can agree that they were a major step forward in accomplishing that goal, but we're also interested in what ancillary benefits, such as improved supply chain productivity and reduced pilferage and other types of objectives might accomplished at the same time. And these are the win/win sort of situations that we hope exists with the new security initiatives. I will be talking about four things-. Actually, Kimberly began the discussion by talking about having our security inspections of containers occur offshore, at ports - foreign ports prior to leaving those ports bound for U.S. ports. That will be the focus of much of what I will be talking about from a productivity point of view. I will spend some time talking about offshoring, and the reasons why that has occurred and how we go about determining supply chain productivity. That will lead very naturally into productivity and offshoring and the answer is clearly, yes, productivity is enhanced by offshoring. We'll provide some information for you, dealing with foreign trade and its impact on the U.S. economy. I will end with an example that there are opportunities for win/win, where we increase not only security but supply chain productivity. But then there also is the possibility that we may not have a productivity enhancing kind of objective, so we have to be careful, as we put these new security initiatives forward to be sure that we are, indeed, not having a significantly negative impact on U.S. economic productivity.

Okay. Going back to the CSI, the container security initiative, as Kimberly mentioned earlier, a prescreen of ocean containers in foreign parts so in order to stop weapons and other things that we don't want to have coming into the United States, but stopping them before they actually leave the foreign port. This also allows us to distribute the screening processes and has many ports looking at security for us, ports like Hong Kong, Singapore, Rotterdam, and other ports such as those. And the good news is it allows for idle time, if there is any, at foreign ported to conduct the screening, and it actually has also forced shippers to improve their asset visibility and what I mean by that they tend to be a little bit more aware of where the containers are, and this can be very useful for them in terms of making decisions, which could be productivity enhancing. The not-so-good news is that there are some fairly strict, at least according some of the shippers, information timing requirements, and the big question is: how do these new security initiatives affect the port and the operations at ports and also the supply chains from a productivity point of view? The CSI rule states essentially that the carriers must submit cargo declarations 24 hours prior to loading a vessel at a foreign port. This means a much earlier notification of information than before CSI, and the freight description is required to be a little more thorough, as Kimberly alluded to. It requires automated data transfer to customs on border control . Confidentiality, of course is an issue. Thereare rules that allow targeting of containers at these CSI ports, in terms of which ones should be inspected. And one of the claims, of course, is that this is going to be helpful from a productivity point of view.

Let me move on to offshoring and supply chain productivity and back off, just a little bit, to provide a little bit of a tutorial - a very short one - on what makes supply chains productive. Obviously, a major reason, if not almost the largest reason for going offshore, is cost. And the costs that are under consideration are the product itself. We know that there are a lot of countries where we can have products built that are less expensive than the United States, and that makes these products attractive to produce offshore. However, the further away the manufacturing facility is, the more time it takes to get the product to the U.S. market, and the more costs for transportation, inventory, and storage is generated. So we're balancing off the advantages of product costs versus the disadvantage of increased logistics cost. However, if the total cost is lower offshore, then the there's a good argument for going offshore, making the materials elsewhere, and then bringing them into the United States. Lead time is the time it takes to move a good from origin to destination. And geographic operation of manufacturing, say in China and market in the U.S. results in three things, two of which are bad and one is good. The first bad thing that happens is it takes longer to get the manufactured good from origin to destination. Often that leads to lead time variability, variation in the length of time it takes to get material from origin to destination it. It turns out that variability is a significant issue that's probably not discussed enough that can have major impact on cost. Now, of course, there's the lower unit production costs that we mentioned earlier and that's certainly a good or a compelling reason to go offshore. Decreases in lead time mean and variability means improved productivity if you are the logistics industry, and decreases in unit production costs certainly help to justify the separation and hence the tremendous increase in the movement of goods from particularly China and into the U.S. mainland and the U.S. market. There's something called customer service level, it's the probability that the customer will find the desired product on the shelf. If you are a shipper, you want to have customer service level as high as possible, and in order to do that, sometimes have you to stock a little extra inventory. Extra inventory costs money, but you might need to keep a little extra inventory on hand to ensure that the customer level is achieved. That's often called safety stock. Here are some charts that I will just skip through very quickly, that indicate that under reasonable assumptions, as lead time increases, as the length of time it takes to go from origin to destination increases, your safety stock goes up and that increases costs. This increases your inventory and storage costs and that's not good. This is a chart that indicates that as the variability of lead time increases, going the x axis from left to right, that expected profit will decrease, and, again, that's not good, but here we see that as the unit production costs go down, then we can expect profits to go up. It's just a graphical depiction of what we said a little bit earlier.

Well, what has been the implication for foreign trade to the U.S. economy? It's been quite significant, as this chart shows. This shows that the percent of GDP that's been generated by the international trade in goods has been going up fairly steadily. There's been a blip down in the recent economic downtimes, worldwide, but we're still generating almost 25% of our GDP by foreign trade. So foreign trade has a huge impact on our GDP. And the reason for this growth is because the international logistics industry is becoming more productive and more efficient and as a result it's been making sense from a cost perspective to go offshore and have things made there. This chart indicates where all of these new goods are coming into the United States, and we can see there's been a surge in the last 20 years or so virtually across all of our borders. Some of this is caused by NAFTA, but a lot of it is just simply caused by the fact that our logistics industry is gotten very efficient at the international level and the cost of goods made in china and other places in Asia pacific, in particular, are relatively very inexpensive. We can see what logistics has done from a productivity point of view in terms of trade with China. In this chart, we give a short list of something that could be much longer in terms of China's role as the world's largest factory. We can see, for example, more than 50% of the world's cameras are now made in China. It's a very impressive - and these percentages are growing quite rapidly. Again, I just put a chart in here for those of you who are interested in global economics to indicate that China is also turning into a large consumption market that will also enhance trade going into China, not right away, but certainly eventually. So I think our future is going to see a lot more international trade, and use of the international logistics. This particular chart indicates the expansion of U.S. China trade relations over the years, and you can see some very rapid growth in these numbers.

Going on to the example, the intent of the example is to illustrate that sometimes of our regulations may, indeed, not be productivity enhancing but can, in fact, not be helpful from a productivity point of view. We just need to be careful, as we write regulations and enforce them, in order to hopefully have the win/win that we all want, more secure trade, as well as more productive trade. We have recently heard, for example, statements like ‘CSI has forced us into improving visibility, and we haven't seen any negative impact'. This statement comes from a major shipper, a discount shipper that provides 50% of the shipped goods from China into the United States; a household name. However, we contend that there are situations where inefficiencies can occur, and let me go into the example, to indicate this. We'll look at the following situation in two ways. We have two scenarios where goods are moved from an origin port, like Singapore to a destination port like LA Long Beach. We are looking at a single product or containers that have a single product in them, that are in the shipment, and the shipment is in container loads. The vessel leaves the origin for the destination periodically. These are typically every three to eight days from a large port to a large market like Singapore and the United States. Total travel time is fixed, fairly predictable and we know that. That's certainly true of most of the trade lanes between Singapore, or Hong Kong and the U.S. west coast ports. And let's say for the moment that the shipper is interested in keeping the customer service level, the service level to his customers in his retail store outlets in the United States, at a constant level using safety stock if he needs to. In other words if he sees his customer service level dropping, he will increase his safety stock in order to compensate. Let's look at the first scenario. The first scenario assumes that the origin port, Singapore being an example of a CSI compliant port is, indeed, CSI compliant and that each container can be inspected at the port of origin, before it's loaded on to a vessel bound for the destination port. And if the container is selected for screening, the inspection time is variable which is certainly true in all the ports that we're aware of, and that all containers arrive at their destination receive a green lane treatment and hence or not inspected. For the inspected containers we have seen likelihoods of roughly one out of five that go into a ‘rollover' phase, in other words the container has had to wait until the next sailing. What we are interested in is knowing what is the impact on our safety stock? And we assume that the time between sailings is seven days, which is typical of sailings between Singapore, the largest container port, to LA Long Beach, which is our largest container port. This slide illustrated what happens. The inspections occur in Singapore and they don't occur in Los Angeles, and it takes about 15 days to sail between Singapore and Los Angeles and the ship leaves about once a week. The scenario suggests that under the assumptions that we have made, assuming that we are keeping an optimal amount of safety stock, that the increase in safety stock depending on the percent of inspection that we have here, say 5% of our percentage of containers that are inspected, that we'll need to increase the percentage of our safety stock by almost one-fifth, right around one-fifth, which is significant and generates a significant amount of additional costs from an inventory point of view. And we'll just kind of keep that number in mind as we go through the other scenario, the second scenario. The second scenario says we don't inspect in Singapore but we inspect in LA Long Beach, which is the - really the last thing that you want to do from a security point of view. But we now want to look at this scenario from a productivity point of view. We assume that the same kinds of variation in terms of inspection time occurs in LA Long Beach, as occurred in Singapore in the first scenario. The second scenario is explained by this diagram where the non-CSI port does not inspect that particular box and then the box gets inspected in, say, the inbound port or the port of destination, in this case Long Beach. When this occurs, what we see is that for a 5% inspection rate, the increase is the safety stock is almost negligible. So, in fact, what we have here is an example of two situations where by doing what we think is the right thing, and certainly is the right thing from a security point of view, inspecting offshore, rather than waiting until the container gets onshore, we actually have an increase in safety stock by inspecting offshore, which means that , in fact, the productivity of the supply chain actually was lowered, the efficiency of the supply chain was decreased by inspecting offshore. So in this case, we have been able find and identify a situation where we don't have the win/win that we want, and, in fact, we have a degradation of productivity and this is one of the things that I'm sure that Kimberly and others are quite concerned about, and want to avoid as much as possible. But thus far we haven't been seeing this, it's just a possibility.

In summary, what we have looked at here, at least the last part of the presentation, was we've illustrated a situation which we hope won't occur, or only occasionally will, if it does, where we're pushing back the borders may indeed affect supply chain productivity. So the take away here is that we just need to be careful as we build our supply chains, we need to construct and be concerned with the added complexity of security inspections offshore, and do thse inspections in such a way that we insure that we certainly don't decrease or degrade productivity and efficiency in our supply chains but enhance it. For more detail on this research, and other research in the area of supply chain security and productivity, there's a web site there on this page, please go to it, I look forward to your comments, and that's the end of my presentation. Thank you.

J. Seplow:

Thank you, Chip. We'll bring his slide back up after the next presentation in case you don't get a chance to get that web address down now. We'll now have the final presentation of the day, by John Gerner of the Federal Highway Administration. And he will be talking about FHWA's strategic approach to transportation security.

John Gerner:

Good afternoon. I'd like to - my presentation is - this afternoon would touch on three major issues, current FHWA security activities, FHWA's strategic plan for security R&D and security training. And I wanted to do this as a way of showing how freight security works its way into and is part of the overall activities underway at the Federal Highway Administration related to transportation security. Currently, we have activities underway in a number of major areas, including emergency response and recovery, infrastructure protection, freight and border security, many of the things that Kim talked about and Chip's presentation was very much focused on. Security and transportation planning and project development, essentially that's, you know, taking a look at how do we integrate security considerations in project development, and as we begin to - and actually develop the projects through the environmental impact statement process, what are some of the things we should be looking at there? Military deployment, and how we work to assist military, not only in moving from its basis here in this country to operations throughout the world, but then also beginning to take a look at how they will assist us in the future in the event of a security event around the country. And then continuity of operations planning. Those activities that we undertake to make sure that our functions continue, even in difficult times, either as a result of natural events such as a hurricane or just even a power outage, to - to major problems where we would have a security breach or we would lose some facilities and how do we continue operating, keeping essential functions active. Some of our current research activities first begin in the area of physical security and taking a look at how do our bridges and tunnels react to blast loadings, and how those - how we then take that information and translate it into the design models, computer models that we use in the design of bridges and tunnels. And specifically, there's a project there to take a look at validating the models that we have for steel bridge towers, and then also looking at what the strengthening options would - actually how that would apply and how it impacts their performance under blast loading. Then we are - some work on gathering information on state-of-the-art bridge surveillance and security technologies, how we can use the many systems that we have been developed as a result of the its work to help us pay closer attention to what's going on around our critical infrastructure. We're looking at in the office of planning, we have a case study on MPO activities related to enhanced transportation security, and looking at how the MPOs actually are - you know, can be the conveners for these things, either in the emergency response planning and preparedness, how they bring the first responders together, or how we respond in general to activity - to security and natural events, and then where is security in our overall transportation budget? In many metropolitan areas, the critical infrastructure is not owned by stay highway but is owned by local governments and therefore the activities that we have to reduce the risk need to be cranked into the overall planning process. We also have a number of studies underway on - related to the vulnerability of transportation infrastructure that is owned either, you know, telecommunications systems that are owned by state and local government governments or to the transportation management centers themselves. These two areas are the are the transportation management centers have become not only methods or tools for us to manage our transportation system, and to get those camera pictures on what is going on the highways but they have become hubs of activity during events. Much of the emergency operations are controlled out of those - those management centers, and they are susceptible to - to natural, as well as terrorist activities. Telecommunications, many of the devices alongside the roadway are connected by way of telecommunications infrastructure and if this is going to work, we have to make sure that that - that we have redundancies there, to continue to operate, to gather information and disseminate that information. Finally, we have work underway in the office of freight management on the universal electronic freight manifest. This is also something that was touched on both in Kim and Chip's presentation. And the Federal Highway Administration, through the joint program office, recently completed a test of - of the electronic freight manifest, and how it - and looking at a business model whereby companies - freight companies would use their manifest to improve their overall efficiency as Chip pointed out and how the added cost of that manifest and some of the tracking equipment, GPS location of actual shipments, some of the driver credentials that goes along with that, how that - those extra costs can really feedback into the company's operations and provide benefits back to the company, and to its shippers. Looking at - also part of that is the - the standards and the information flows that would go to support that. So that is some of the work that's currently underway in - in federal highways research, but that's not all. There are many other - there's much other work underway, either by AASHTO, through the research program and other through TRB, et cetera. Currently we are working to develop a long-range strategic plan of research in all major work areas. We are trying to apply them to reduce risk and speed the response to security events, but also natural events and traffic events. Looking at risk assessment, or risk reduction vat s. How do we assess the risk of a - of an attack on critical infrastructure and then what are some of the strategies that we can employ to reduce that risk. Going back to the top of the previous slide, design guidance and standards, how do we incorporate what we are learning on the impact of blast on structures, into design guidance to make those new structures that we're building going through the environmental process to make them capable of with standing some of those loads. And they looking at a catastrophic event, we are able to bring the traffic flow back up through rapid repair, or - or replacement of the facility, and - and - and also looking at ways that we can better use the existing transportation system to carry those flows during the interim. Again, the area of freight and cargo security that we have been talking about and how that can be integrated into the activities of not only the state highway department in this area. And finally, emergency response planning and implementation. How we, as - on the transportation side, interact with the first responders, and how we are better able to manage the transportation system to evacuate, and in the event of an emergency, or to - to permit the bringing in of all the supplies that are needed. Case in point is going to be the hurricanes that we have - that we have approaching this country, plus the - the aftermath of the previous hurricane. How can we best manage the transportation system to respond to those. After we identify all of those needs we would create a road map of those needs out over time and then how we would obtain - we would project to obtain funding for the delivery of those needs. And activities for meeting those needs. Earlier this spring, we held a workshop here in WashingtonDC, and we brought in not only technical specialists from within Federal Highway Administration, but also transportation specialists from - from the state highway departments, AASHTO, from the transportation security administration part of the homeland security, and to begin looking at what are our R&D needs? And the major themes that came out of that way of breaking down those - that the many issues that were identified is how do we reduce the vulnerability of highway systems to an attack? You know, kind of the approach we have, you know, talking about hardening and detection and response. Then we are looking at reducing the risk of highway systems to be used as a peens of attack. - as a means after tack. Deliver an attack either on highway facilities themselves or on other critical infrastructure around the country, buildings, et cetera. And then improving the utility of highway systems to respond and recover, and then a series of cross cutting issues. In the area of reducing the vulnerability of highway systems, to the - to attack, we identified some work in the area that advanced awareness of intelligence and threat identification by owners and operators. How can we best get the information that we are collecting on - on threats? How do we get that out to the owners so that they can then conduct the necessary vulnerability assessments, and identify counter measures to lower the risk and then be able to respond? Then we have the area of enhanced risk assessment methodologies themselves, how do we - how do we actually use the methodologies, many of which were developed in response to earthquakes. They - those same strategies apply to terrorist attacks, and how do we apply those to - to critical transportation infrastructure? And we're looking at enhanced surveillance detection and decision support systems. How do we know, you know, on a - that if we put up some motion detectors, you know, to identify when - when something is where it's not supposed to be, or we have cameras that identify when a vehicle is parked underneath a structure and it's really not supposed to be there. And then how do we use surveillance technology, the cameras to detect and to know that is that a pigeon or a person? And - or what's going on around that truck? And then what are the - how do we interact with that? You know, rather than having somebody stare at a camera 24 hours a day, which is - you know, is - has been shown not to be very effective in detection of events of this type, how can we - what sorts of technologies are available to - to monitor that? And then call to the attention of a human the situations that warrant their closer attention? And so we're working on some of those technologies. And then enhancing infrastructure protection strategies, either through hardening, you know, greater structural integrity, and - and the - or creating greater distance between the elements of that infrastructure, and where somebody could get to it. Again, talking a little bit more about enhanced infrastructure restoration, and - and exploration of dependencies and support. In this case, intermodal terminals or how one mode can assist another if that first mode is - is either - has a critical element that's destroyed or taken out of service for a period of time. You're looking at how we can develop, you know, more interrelationships to move people and goods. And then we're looking at - at the areas of reducing the risk of highway systems that - as a means of an attack, and enhanced freight and border security, we talked about. How - how we are able to detect and monitor what's flowing in the - in the freight systems, and while the systems that Chip and Kim talked about, are aimed at - at what some may call the good shippers, the ones that have security plans, you know, and - in other words, the ones that have security plans. And what we do then we're able to concentrate our resources on the people that are - neither are not part of the program, or that would be rogue operators. And so we're - you know much of the border security is to - is to, you though, allow us to pay closer attention to the problem areas. And then we're going to be looking at, okay, as I mentioned earlier, what is the role of the state highway department in freight security? And that is really an unanswered question at this point in time. We - you know the state highway departments weigh stations. They - some of - you know, state highway departments and tollway authorities have toll collection facilities. How can some of the surveillance mechanisms that we have, how can those be employed in conjunction with these other functions to enhance security and tracking of critical shipments, possibly of hazardous material shipments? Things that we know that we have a problem with that - so that they are not hijacked or if they are, we have rapid alerts to that. And - and so we are looking at what mechanisms we can use to enhance that. Again, that gets into the surveillance and detection. And then - and then the - in the post detection what is it we would do? If we identify a problem, how do we bring to bear the many connections we have through state police and local first responders, to respond - to help us respond to those situations? Then improving the utility of the highway system to respond and recover. As I mentioned earlier, enhanced traffic management tools for detours and evacuations and quarantine situations. Looking at some basic fundamental research in traffic flow in a crisis. Much of the research and many of the models that we have developed up until this time have been based on rational driver behavior. You know, how fast is z a person pull away from a traffic light? How much of a gap will they accept at a freeway entrance ramp? And - but we realize that that's not necessarily the case in a crisis. And what do we need to do to - to modify our models to act for this? And to act for, you know, the - account for, you know, the reaction of drivers in difficult situations. You know, we're taking a look at enhanced communication practices, procedures and equipment, between levels of government, and - and with the - and with the many system users, state highway departments, police, fire, EMS and with the public itself. And then, you know - and this is in terms of how do we gather information on conditions, and then report it back out. Then we're also taking a look at development and testing of decontamination strategies. Chemical and biological weapons can be used and in some cases a facility may not be destroyed, but it may be taken out of service, because it has been contaminated. And that its continued use - you know in the case of radiological contamination, traffic constantly driving over it would continue to release a radio active dust that, you know, would be carried by the wind and cause, you know - pose a problem for people downwind. What can we do about those? You know, short of actually taking it out, you know, busting it up and putting it into a landfill? There are - you know, what - and similarly, for some of the biological and chemical contaminants, what are our treatment strategies? In many cases, sure, you could use bleach or some kind of chemicals, but that gets - that has a tendency to get into the water supplies. And so we have to look for how that can be handled. And then, again, rapid repair and remediation strategies to get the facilities back up and running as quickly as possible. We have a number of cross cutting issues we are also identified. Handling the development and handling of security sensitive information. Much of the information we develop on threats and vulnerabilities and our response to those, you knows. Really something that, you know, should not be out in the public for - for public view. On the other hand, we can't lock it up behind - in a safe, because we need that kind of information for us to - to work with our partners, they need to though what we are doing in response to a given situation, and so we need to work on methodologies for handling SSI. And then there are a number of social political issues related to surveillance and detection. And then the issue that faces many owners of critical infrastructure. You know, I have a limited amount of resources and how do I distribute those resources over my needs? Will it be congestion reduction and system maintenance, potholes and now the new player on the block, security. You know, how - what sort of decision making tools can I use to help evaluate those tradeoffs? And then finally, crisis communications, command and control. You know, who is - would is actually in control of a situation? You know, is it the first one on the scene or is it - is it somebody else who has other expertise? Again, those are issues that err with going to be exploring in the coming years. Then as I said, the next steps would be to develop a draft strategic plan, you know based on all of those needs, validate the results of the workshops with many of our program partners, and then identify implementation strategies and then funding. And how that would be done. Now in many cases we, the Federal Highway Administration, may not be the ones that would do a lot of this. On the other hand, we may do, you know, some portions of it. Depending upon what we're best suited for. And so that would also - that would be part of the implementation, what is it that we would do best in this case? And what would be done best by others? Along the same lines, we're looking at training. We have AASHTO and TRB recently completed a survey of the state highway departments, and the results of that survey indicated that one of the most significant needs was the need for training. In awareness, okay? You know, what are my - the security problems and why should I be concerned? You know, technical assistance, bringing people in to help them with vulnerability assessments and - and the identification of countermeasures and how those countermeasures would be implemented. And then the - the incapacity building, in general, improving the understanding of the industry to the needs of transportation. And then creating a road map for funding and delivery of that. So that there would be actually an ordered approach to this. You know what do we need to do first, second and third? So that kind of brings me to the end of the presentation. There are, you know, some information terms of contacts and I have - I have another - an updated slide that would have contact information for some of the other people in the technical areas within Federal Highways. That will be part of the slides that are distributed, you know, with our - or posted on the web site. Thank you.

J. Seplow:

Thank you, John. We're now going to move on to the question and answer portion. I hope everybody did find these presentations interesting. It looks like there's some questions posted. Some of them are towards specific speakers while others are more towards all the speakers. I will start with the speakers-specific questions first. So the first question we have is for Kim Nott. And Kim, the question is. What is the electronic format for providing the information?

K. Nott:

There's various ways due to the mode of transportation you are using. For vessel, we have what we call ANSI x 12 or rail, and ANSI x 12 air. What you can do is go to our web site and how I showed you originally, there were the three columns, at the top it will say import, select import and once you get into import, curse our down to where it says operation support and it takes you into our automated manifest systems or you can - actually get all of that go into the search button and type cmair, there are two documents, one is cmair and that stands for customs automated manifest interface requirements. There's one for air, it says cmair and it says cmair intermodal and that covers air and vessel and the truck, like I said, some very smaller things we're using and until our new computer system comes up and that's ace, ace., automated commercial environment and actually our first test pilot on that is in December, December and those will be posted. You can probably put in ace in the search engine also and get the same information.

J. Seplow:

Thank you, Kim. The next question we have is for Chip. Chip, you mentioned that there is a greater emphasis being placed on checking containers at offshore ports than U.S. ports what is being done to ensure those containers are not tampered with prior to getting to U.S. ports and final destination?

C. White:

Well, this is - is this the second question?

J. Seplow:

Let's see... It is a third one listed in the chat area. I'm not sure if you can see it or not.

C. White:

Oh, in the chat area. Yeah, by the way, the chat area questions were all very good. And this is the third question?

J. Seplow:

Yes.

C. White

Okay. The - well, there are a series of questions there. What I read here is how many security professionals who are charged with protecting their organization's supply chain understand supply chain issues? That - that's what I'm -

J. Seplow:

Yes, you may not be seeing this one question then. It may have just been sent to me so you might not be seeing it.

C. White:

Okay. So maybe you can ask me again.

J. Seplow:

Sure. It says you mentioned there's a greater emphasis being placed on checking containers at offshore ports than U.S. ports. What is being done to ensure that those containers are not tampered with prior to getting to U.S. ports or at U.S. ports and to final destination?

C. White:

This is probably a better question for Kim than me. Just a remark before perhaps she addresses that, there - there is opportunity for - for tampering with containers while they are being - you know sailing between a - any two ports and as a matter of fact, in Asia pacific, there's a great deal of piracy. So these - these - this kind of issue does come up, and it's an important one, because it - if there are pirates, it's a little different than if there are terrorists. So maybe I could ask Kim to address that very same question.

K. Nott:

On the security of the container?

C. White

Yes. I mean, how - what are the reasons that you check some of the containers that are already checked, you know once they hit the shore as to in part protect against this but while the container is in sail, how do you protect containers.

K. Nott:

There's several things that we are working on. Number one we wanted to require a seal on every container; however, the cost of that was very prohibited. The cheapest we could get it at, excuse me, at the time of when we were doing all of these regulations were - was about $10 a seal and that's very expensive. Since then we have definitely been working on t. We set up - of homeland security set up a work group specifically looking at container seals. And reducing the cost of those by getting the manufacturers involved in it to see would can present what we need, reusable, be able to tell from the outside of the container if it's been opened, a lot of things like that. So I do know that they have brought those costs down and I think they are in instituting some tests on those now. So eventually it will be a requirement that all containers are sealed, even empties. How the containers are stacked on the vessel, actually lends itself a lot to whether it's tampered with or not, many of them you cannot get to. They might be stored, five, six stories high. So that's part of it. So we do take involvement into where it's actually stowed on the containers that we can tell. That the ct program, customs trade partnership against terrorism, that - many of them they are required within those security procedures to seal all loaded containers. So that's part of it. The empties are still there and we do require when they land, unfortunately that's a little too late but we do require that we x-ray those. And we are doing - we're trying to get information from the actual stowage plans prior - when it sails so we have that information available before the vessel gets here. While we might have a suspect container. Might not be something that can be reached or even if it's not suspect, we have a container that's reachable, and could possibly have something introduced in it while it sails. So that way we have that information ahead of time. Again, everything that we with require would be coming out of in a Federal Register. So I would encourage you to keep an eye on. That the seals issue is moving along fairly quickly and I would envision seeing that proposal within, I would say six months. I'm not really sure but I do know it has been moving along quickly.

C. White:

Just a comment from some of the industry, that are involved with the smart seals project or pilot, that is currently going on, there is concern from the private sector that the cost of those seals will, as you say be prohibitive and, in fact, have a negative impact on cost and productivity. But you are right, you know, as you envision how the containers are stacked, most of them, are sort of protected by other containers from being tampered, but, you know, with - for example, 4800 container ship, there are a lot of containers that could, perhaps, be tampered with and not through the doors. So the seal isn't violated. So there is some possibility of - of, you though, problems, there but not as - not as great with a real big ship as some of the smaller ships that are really subject to piracy.

J. Seplow:

And this is perhaps a follow-on question and Kim if you want to try answering it first. The question is: why are we subsidizing, I.e., using federal taxpayer dollars, for the security of all of these U.S. company shipments back to the U.S. what tax is now being imposed on these companies to pay for all of this?

K. Nott:

I have no idea. I know that for the - the test of the smart seal that's been a voluntary program for companies coming in. I don't know anything about imposing a tax or any kind of fee directly for the actual seals or any other fee for that matter.

C. White:

I think the shippers and the carriers are - would be probably, the ones for the responsibility of the cost of the seals and certainly the shippers are certainly, the ones that are going to have their cost in terms of inventory and storage costs affected by any increase in the complexity of the process of these containers as they get inspected and the impact on ports is going to be to increase the productivity of ports but one of the things that you have is storage facilities at port and that doesn't have a great deal of impact in a port that relatively has plenty of land and the land is relatively inexpensive like savannah. Or a land locked sing amour like sing amour pore. So those are comments from the private side.

J. Seplow:

Thank you. Next question we have is actually for John Gerner, I believe, let's see the question is: how have state DOTs been involved in freight security and what is their role?

J. Gerner:

At this point in time that question could go as unanswered. I have not really - many states do not have a legal authority for - for control of freight. I mean, they - they have weight restrictions that are placed on the containers themselves, size restrictions, many of them, you know, do inspect for under the motor carrier safety, the condition of the truck and the tractor and the driver, but they do not - and they do not really have a whole lot of authority over the - what flows in commerce. And - and so the - the - at this time, that continues to be a work in progress in terms of how they are - you know what their responsibility is going to be. So I would not - I - I would not want to give the implication that they are responsible at this point in time.

J. Seplow:

Okay. The next question is I believe is for you as well. What are the requirements for having a quick-response plan to deal with incidents? What level of government are these developed/implemented? Are there plans in place to ensure the reopening of highways after an incident and preserving the economy?

J. Gerner:

That - there are no specific requirements in terms of - and we have no requirement for a quick response plan. Much of the emergency response planning has been undertaken as a result of state highway departments, local governments wanting to clear up an accident quickly to get traffic moving again. So it is - you know, the requirement is - is self-imposed. And - and also it's - it's part of the overall - you know, providing for the safety of the drivers and the rescue of the injured. We are encouraging the first responders to - to work more closely with the state highway departments to how they could be used to help clear the way and get the facility back open. So there's really not a requirement, but it is a way of getting the system back up and running. It is their own best interest to do that.

J. Seplow:

Thank you, John. We do have one more question for you here. The question is: it seems that most of the initiatives being undertaken at the national level are long-term solutions for addressing the vulnerability of the highway system wax are some of the short-term proactive initiatives being taken to address or address the vulnerability of the critical highway initiatives?

J. Gerner:

The short-term actions are really - they really begin with the vulnerability assessment, and to identify what is truly critical infrastructure, and what are the threats against that infrastructure, and - and what are the counter measures that can be employed? And in many cases - and how that is then tied to the threat level itself. In many cases, that can be - those concerns can be addressed relatively cheaply through surveillance, routine patrols by police, state police, local police. Relatively inexpensive cameras and detection equipment, to identify when - when something is out of place. And then just - just good response planning. Another relatively inexpensive area is worker awareness. The trading of highway maintenance workers and even the driving public to be observant of things that don't just look right and then to - and then what to do about that information. Who do call. So those are - those are quick and easy counter measures that can be used. But - and then the Federal Highway Administration has - is did, has a number of groups that are available, either through the office of bridge technology, or - or through the office of highway operations to help state highway departments improve their ongoing - or their current systems to better address this problem area and then there are other activities underway in - in the structural design area, looking at cost effective counter measures, retrofit schemes, things that can be done, can be implemented on existing structures that are not truly, you know, too expensive but that would help reduce the risk of a catastrophic failure in the event of an attack. I hope that addresses the - you know the major areas.

J. Seplow:

Thank you, John. I will now move on to a question - I will address this to all presenters and I think - we'll start with Kim with the first, but the question is, supply chain security involves more than just mitigating the threat of overseas terrorism on our ports. It involves all types of hazards shouldn't U.S. companies address overseas production to minimize disruption that can affect their employees and shareholders.

K. Nott:

I think that's absolutely what we've been trying to do to get everyone involved in the supply chain involved with the cp pat program. We want the entire process to be visible to everyone so that we know when it left, the plant, the foreign manufacturer, until the time it gets to the actual store shelf, we can see where it went through, and that involves everyone. They all need to get involved and have a piece of that. There's a lot of issues involving that and saying that's very simple but that's the ultimate goal, I think and that's the only way. Everyone involved in the cargo has to be part of that process.

J. Seplow:

Chip do you have any thoughts on that?

C. White:

If you look at the impact of terrorism on supply chains, as has been alluded to earlier, major weather problems, labor strife, earthquakes, fires and other accidents really have the same kind of potential for a major disruption of supply chains. So all of these - all of these kinds of disruptions need to be looked at and they are by companies, transportation companies, which constantly reassess the design of their supply chains in light of a variety of things like the potential for disruption in a particular part of the world, or for particular reason. And - so this is being done now, and, you know, in the executive offices typically of transportation companies and I think - well, actually, Kim - Kimberly alluded to ct pat, which has been a very helpful kind of activity for a lot of companies, just to help them better understand exactly what their processes are in the supply chain and it's helped manufacture them just sort of rethink what they are doing and has improved their efficiency.

J. Seplow:

Thank you, Chip. John, I will turn to you.

J. Gerner:

I really don't have any comment on that one.

J. Seplow:

Okay. We'll move to the next question, which I think applies to John and Kim, but Chip if you want to weigh in as well, and the question is: how effective is the federal government in protecting critical transportation infrastructure when the transportation reauthorization bill is in the DOT, while a security of transportation is with DHS? Reason we continuing the old Washington industry of stove piping?

K. Nott:

That's a doozie! Yes and no. I mean, it's - it's been a challenge but I do think with the creation of DHS, it's forced us to understand and just, you know, things that have gone up that stove pipes are not the way to do it. We have been extremely involved. The work groups are being better - generated by DHS to incorporate members of the transportation community, and I think everybody just has a bigger vision now, I'm not saying that means it's all easy and we are doing it well, but we are trying very hard and I do think that it is - we're striving towards the right thing and as long as we are striving towards that, we'll only get better. And, you know, just the - the incidents that actually got me on this conference call was a person who came over here to work from DOT so that's what got all of this involved and the fact that all of this is happening. We're starting to reach out more to our other agencies whether they are in the same department or not. So I think we're out in a bigger picture these days and that's - we all understand that stove pipes are not working and we are trying our best to keep them down as much as possible.

J. Gerner:

And I would - I would echo that. I think that - that - I would offer that the stove pipes of a - you know, prior to the formation of DHS were probably more problematic than what they are today. DHS was - was - you know, was formed, bringing together 22 different agencies within the federal government that had varying roles in the area of security. And bringing that under the umbrella of one - of one agency to provide greater focus, and - and the - and DOT - you know, we have not - you know, from that standpoint, we really have continued our activities in the area of security, and are working to - you know to partner with DHS in those areas and so I would - I would offer or counter that I think that we are better prepared now to handle those issues in a - in a coordinated manner than we were in the past. We - we have - we now have a vocal point to work with, whereas in the past, we maybe had not 22, but we had some subset of that, that we were having to deal with, oftentimes we might not know them all. So I think we're better off.

J. Seplow:

And Chip, I will just give you a chance if you wanted to weigh in on anything.

C. White:

Not on that particular topic. There's another question that might be - there's another question in the chat box that might be a little more appropriate for me to - to respond to.

J. Seplow:

Let's see do you want to go ahead and read that one because it doesn't look like it got sent to me.

C. White:

Okay, actually, it's - I can read it to you. How many security professionals who are charged with protecting their organization's supply chains, facilities assets and so forth, understand the supply chain itself? And how many supply chain professionals focus exclusively on the sufficiency of supply chains? Shouldn't we promote cross functional training of these two business units and decrease the silos in the enterprise? Actually, that is - we certainly should promote those cross functional training activities, so that people understand the tradeoff between efficiency and security. I might add that, you know, before there was concern about security. There was really a very fundamental focus in the design of supply chains on efficiency and that produced the Toyota manufacturing process, just in time, thinking lean manufacturing, those concepts and it turned out that those kinds of supply chains were very - very fragile, just a little disruption in them can cause, plants to shut down and so forth. We saw that right after 9/11 in the Detroit area, when the investor bridge really closed down, and the movement of auto parts across the ambassador bridge from Canada - the Canadian suppliers into U.S. auto assembly plants just really stopped. And it caused a lot of plant shutdowns. Now the term in supply chain design is resilience, building robustness, adaptive capabilities into supply chain designs. So there are disruptions that the supply chain can react to it, in - and - in as efficient way as possible. So there's the tradeoff between robustness and supply chain and efficiency. So, yes those are topics that are very much part of the supply chain design ideas and concepts that are going on in the private sector right now. And quite frankly, there is a difference now in terms of how supply chains are designed, taking into contribution - consideration major disruptions whereas before there were only really what you would call normal levels of uncertainty looks like uncertainty with respect to consumer demand. So yes, we should promote the crossfunctional training and, indeed we do.

J. Seplow:

Thank you, Chip. We have one more question, and then I think we're actually going to close out the seminar for the day. The last question is for Kim. The question is: why would a terrorist shipping a bad item declare the true nature of the cargo? Why would he not give a wrong description? Is there really a good substitute for physical inspection of some kind?

K. Nott:

We don't rely on them to say, hey, there's a bomb in this container what we rely on is anomalies in the information. If we do an x-ray and we have something that doesn't fit, tobacco that it might be the first time this person has ever imported this type of product. It is a layered approach that we do and everyone agrees we all would like 100% inspection but we also would like to have products on our shelves. And we do not have staffing, resources, manpower, nor do the ports. I mean, it's just not a possible way to do 100% inspection. So we're trying our best to create more information, do layered approaches. We have a lot of various databases we reach into to get information on this product, this shipment, this person, and so by using that, we definitely feel that we have a good risk-based system. We always want to add more to it, to make sure that we can do as much as possible and we have such a variable in our targeting that there's certain things that just you have to inspect, period there's others that say, okay, we need to you do pore research on this because this isn't - we just don't know about the shipment right now. We want research done. Pushing the borders out we don't want to be the last line of defense, we want it to be the first line. We want it to be push so we don't let things here that are suspicious, whether that means it's a bomb or nothing, but it's something suspicious that we are not comfortable. With we want to do all that and push all of that. By doing that and creating a layered approach we are doing the best we can without having to completely stop cargo which is what would happen if we did 100% physical examination.

J. Seplow:

Okay. Thank you, Kim. It's about 2:30 so I don't think we'll have time to open up the phone lines today. If you do have additional questions, I encourage you to - either post them to the freight planning listserv or if you have a question for a specific speaker we have their emails up there. I would like to thank all three speakers and thank everyone for attending the seminar. The recorded version will be available on the Talking Freight web site and I will send out an email to all when it is available. The presentations will be available at that time as well and I will also notify you of that. The next seminar will be held on October 20th and it's titled "Perspectives from Freight Transportation Providers - Air Cargo and Logistics." We'll have speakers from the Council of Logistics Management, DHL and the Cargo Airline Association. If you haven't done so already, I encourage to you visit the Talking Freight web site and sign up for this one, as well as future seminars and I encourage you to join the freight planning listserv. So thank you, everybody and enjoy the rest of your day.

Operator:

Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line.